The banking sector in Abu Dhabi showed consistent increases in liquidity and net profits throughout 2012, largely aided by net-interest earnings and bigger profits from Islamic finance. Fourth-quarter results and a strong performance by many banks’ shares – the strongest in five years – have led many analysts to conclude that the sector is firmly on the path to recovery.
Indeed, Reuters reported on February 6 that the Abu Dhabi bank index was up by 11.4%, outperforming a 10.1% increase in the overall market, though from an admittedly low base. October 2012 was as a major turning point for the UAE’s banks, when outstanding provisions – which banks set aside for bad loans – decreased for the first time since 2008.
“Provisions of UAE banks are moderating,” Chiradeep Ghosh, an equity research analyst at Bahrain-based Securities and Investment Company, told Reuters. “Improving economic conditions and a pick-up in real estate prices are likely to further support lower provisioning, and can be positive for banks’ profitability.”
The National Bank of Abu Dhabi (NBAD), the emirate’s largest bank by market value, posted a net profit of Dh1.12bn ($304.86m) in the fourth quarter of 2012, up 54.8% year-on-year (y-o-y) from Dh724m ($197.07m). Earnings for the year as a whole were up 16.8%, from Dh3.7bn ($1.01bn) to Dh4.33bn ($1.18bn). This was largely due to higher investment and interest income, according to a statement released by the bank at the end of January.
NBAD also saw a 10% increase in operating profit in 2012 – from Dh7.88bn ($2.14bn) in 2011 to Dh8.67bn ($2.36bn) in 2012 – and a rise in net interest income and net income from Islamic financial services, up 5.1% to Dh6.1bn ($1.66bn).
Meanwhile, Abu Dhabi Commercial Bank (ADCB), the second-largest bank in the market, posted a net profit of Dh2.8bn ($762.3m) for 2012, which was down on the Dh3.04bn ($827.6m) the bank saw in 2011, but the decrease was due to a Dh1.3bn ($353.9m) non-recurring gain on the sale of ADCB’s stake in RHB Capital in June 2011. Excluding the sale, the bank said its net profit for 2012 was up 62% over 2011. Total operating income was also up 9%, to Dh6.6bn ($1.8bn).
First Gulf Bank (FGB), the third-largest lender in the UAE by market value, posted a 12% y-o-y rise in fourth-quarter net profit, recording Dh1.12bn ($304.86m) for the final quarter of 2012 – up from Dh1.02bn ($277.64m) for the same period in 2011. Net profit for the year as a whole reached Dh4.15bn ($1.13bn), also up around 12% y-o-y.
The bank’s total assets increased 11% in 2012 to reach Dh175bn ($47.63bn) for the year. Loans and advances also saw a significant increase of 9% in 2012, reaching Dh114.6bn ($31.19bn). This expansion in liquidity – as demonstrated by a decrease in the loan-to-deposit ratio from 101% in 2011 to 96% in 2012, a direct result of a Dh15.8bn ($4.3bn) increase in customer deposits – and increases in net profit were likely responsible for higher lending.
These increases came largely on the back of higher interest income and Islamic banking, which each grew 9% in 2012. Additionally, the corporate, retail and treasury branches increased by 38%, 41% and 11%, respectively, throughout the year.
Union National Bank (UNB), Abu Dhabi’s fourth-largest lender by market value, also posted a significant increase in earnings for 2012, with fourth-quarter profit up 8.8%, to Dh136m ($37.02m). Total profit for the year was up 6.8%, from Dh1.5bn ($408.29m) in 2011 to Dh1.6bn ($435.51m) in 2012. In a statement from the bank in late January, these increases were attributed to growth in net interest income and a 6.2% increase in net income from Islamic financial services. Meanwhile, deposits increased by 5.2% in 2012, though net loans and advances decreased by 0.4% to Dh57.3bn ($15.59bn), down from Dh57.6bn ($15.68bn) in 2011.
While lending has remained generally sluggish and the jump in banking shares remains a very preliminary positive sign, the fourth-quarter 2012 reports support the belief that Abu Dhabi’s banks are on the way to recovery from the financial crisis of five years ago. This should provide them with opportunities to expand, particularly in regards to the emirate’s Economic Vision 2030, a blueprint for development.
“All projects underway today act as building blocks in the emirate’s long-term vision, and banks play a key role in this facilitation,” Ala’a Eraiqat, the CEO of Abu Dhabi Commercial Bank, told OBG. “The government has done its part by articulating the vision and putting money and energy behind the plan, so it is imperative that local banks also support these efforts.”
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